Wednesday, May 23, 2012

Just How Bad is this Recovery?

Eli,

Given the sluggish growth of the past three years, what is amazing to me is how strong Obama is in the polls.

I was listening to the Sunday talk shows where it seemed the Democrats were trying on the one hand to describe how awful the economy is and on the other hand how much more awful it would be with Romney and the Republicans holding power. The Republicans had an easier argument. They only had to say the economy was awful. Today the Wall Street Journal had an op-ed characterizing this as a particularly weak recovery.

Enough is a enough I said. I'm tired of the hacks on both sides just saying things. How slow is this recovery? I wanted data that broadly described the economy, was available since 1947 and was accessible via the FRED (Federal Reserve Bank of St. Louis) database. I looked at the growth, from the trough, of three items: employment, real GDP and corporate profits.

There have been eleven recessions and recoveries since the end of WWII. The start and end dates are determined by the National Bureau of Economic Research at nber.org.

This first graph is the employment for each of the eleven recoveries NBER has classified since the end of WWII. There was a very short-lived recovery under Jimmy Carter, that started in 1980, and it's in the graph but truncated, so I didn't label it, but if you look closely, you'll see it.

This recovery, as you can see is not just one of the weakest, it is THE weakest on record since WWII. The numbers are really bad. 35 months after the recovery began, the number of workers is 1.3% higher than the trough value.

Interestingly, the four best recoveries are under Republican Presidents. Some of the liberal gas bags like to draw correlations between Democrat Presidents and the stock market's performance. Kind of a silly game, but I can play. This chart shows Democrats are bad for workers in a recovery.

One of the Republican talking points is the severity of a recession is correlated with the strength of the recovery. It sounds good, but I don't think the facts support this assertion. As measured by the drop in real GDP the Bush II recession was the worst of the 11 post-war recessions. There doesn't seem to be a rank correlation between severity of downturn and subsequent growth of the recovery. The black bars are the peak to trough decline in real GDP. The white bars are the subsequent 11 quarters of cumulative growth in real GDP.

The Obama recovery, again, is the weakest on record, with a cumulative growth of 6.81%. Even George Bush II is better at 7.64%.

But there is good news. Here is the cumulative change in corporate profits, for the eleven quarters after a recovery began for each of the recoveries in the US since WWII. On this measure, the Obama recovery looks above average.

So why is Obama so close to Romney in the polls? Romney should be way ahead. Maybe a sign the election is still too far in the future? Maybe a deep distrust of Romney and Republicans?